September 21, 1999 2:25 PM PDT

Will PeopleSoft come of age?

The resignation of PeopleSoft's revered chief executive today was no ordinary transition: It effectively marked the 12-year-old company's entry into adulthood.

The question remains, however, whether it can still come of age.

Reassigning himself to the position of board chairman, founder Dave Duffield has effectively ended his reign over what was once known as one of the most relaxed and--true to its name--people-focused companies in Silicon Valley.

Although some questioned the corporate fortitude of Duffield's successor, president and chief operating officer Craig Conway, others said his subtle leadership may be just what PeopleSoft needs.

"They were a little too quirky and a little too informal [in the past]," Jim Shepherd, an industry analyst at Boston-based AMR Research, said in a recent interview. "[Change is] a painful process and probably one of the things PeopleSoft didn't do enough of because of the touchy-feely culture and the loyalty of people who work there."

"I think Craig will bring some organization and some energy to the company," Shepherd added.

However, reversing PeopleSoft's recent fortunes is no mean feat, even for a company veteran. Conway is assuming the reins of PeopleSoft at a critical juncture for the once-freewheeling software company as it struggles to reinvent itself for the Internet.

As Conway builds his management team, analysts are questioning whether the former Oracle executive has what it takes to stop PeopleSoft from its relentless slide behind rivals Oracle and SAP, the top two enterprise resource planning (ERP) software companies.

Meta Group analyst Steve Bonadio compared the less-visible Conway to other top software executives, such as SAP cofounder Hasso Plattner and outspoken Oracle chief executive Larry Ellison.

"These are people who are very vocal, very charismatic, very sure of themselves, very aggressive," Bonadio said. "From what I've seen, Conway doesn't share most of that."

Moreover, Conway, who most recently served as chief executive for broadcast network firm OneTouch Systems before joining PeopleSoft, will certainly be faced with some morale problems. PeopleSoft's stock price has dropped significantly, and a number of senior managers have left over the past six months.

Many of the rank and file at PeopleSoft hold stock options that are now worth little, after the company repriced some 13 million options in December to $17 per share. PeopleSoft stock was trading at $17.68 per share this afternoon.

"Essentially you barely break even," said Yankee Group analyst Harry Tse, who follows ERP leaders. "That's not even a bonus yet."

Conway's compensation package includes a stock purchase agreement that gives him 500,000 options at a penny apiece, which won't vest until the company's stock trades at a certain price. The company declined to specify at what price the options would vest.

Strategy holes
Despite a strong customer base of about 3,000 users and a well-respected suite of human resources and financial applications, PeopleSoft has a gaping hole in its strategy--the lack of its own customer relationship management software.

"Without a front office strategy, PeopleSoft has a very large hole they're staring at," AMR Research analyst Pierre Mitchell said.

PeopleSoft also needs to get its finances back on track. Last quarter, the company reported a 61 percent decline in new license fees--a key gauge of a software application firm's health. The company's profits dropped 92 percent to $3 million in the second quarter and cut workers from its payrolls for the first time.

Conway could not immediately be reached today.

Nevertheless, at PeopleSoft's annual user conference last month, Conway insisted that his company is on track. He said he was sending service representatives back into the field to provide more customer support, a move that users welcomed.

PeopleSoft is also attempting to get its Internet strategy back on track, with a plan to ship long-awaited PeopleSoft 8 Web-based software in the fourth quarter. Applications for the software are scheduled to follow next year.

In July, the company scuttled its Internet project, called the PeopleSoft Business Network, and an associated advertising campaign, only to recently revive the plan under the name of eBusiness applications for PeopleSoft 8. The applications are intended to help companies build Web-based communities for business partners and suppliers.

But Yankee's Tse said the company needs to focus on selling more financial applications to customers who stand to benefit from e-commerce. About 80 percent of PeopleSoft's customers use the company's human resources software but have little need for e-commerce software, he said.

At the same time, Tse said, rival J.D. Edwards is coming on strong and is eyeing PeopleSoft's market share hungrily.

"The software industry is a street fight," AMR analyst David Caruso said. "You have to have the gloves on every day."

 

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